-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q3vKgrXKWNw5lJ5G6Nj4M3fPU4p8Y0H9Y1wofSI6ZZd1Njy+Xhr1wnxQVDyun6eE cXl1FWavtExdrmNmPmemug== 0000950123-95-003086.txt : 19951101 0000950123-95-003086.hdr.sgml : 19951101 ACCESSION NUMBER: 0000950123-95-003086 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951002 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19951031 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOSTER WHEELER CORP CENTRAL INDEX KEY: 0000038321 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 131855904 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-00286 FILM NUMBER: 95586005 BUSINESS ADDRESS: STREET 1: PERRYVILLE CORPORATE PARK CITY: CLINTON STATE: NJ ZIP: 08809 BUSINESS PHONE: 9087304090 8-K/A 1 FORM 8-K/A CURRENT REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) October 2, 1995 -------------------------------- Foster Wheeler Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New York 1-286-2 13-1855904 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) Perryville Corporate Park, Service Road East 173, Clinton, N.J. 08809-4000 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (908) 730-4000 ------------------------------ - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On September 30, 1995, Foster Wheeler Corporation (the "Company") completed the acquisition of the power generation business of A. Ahlstrom Corporation, a privately held Finnish corporation ("Pyropower"), for a purchase price of approximately $200 million. The acquisition of Pyropower consisted of the purchase of stock in the United States, Europe, Scandinavia and Asia and assets in Finland and the United States. The final price is subject to post-closing adjustments based on Pyropower's financial performance in 1995. The Company expects this acquisition to be accretive to its 1996 earnings. Pyropower is a leader in the design, manufacture and supply of circulating fluidized bed (CFB) systems (including steam generators that burn a wide variety of solid fuels) to utility and industrial customers worldwide and also provides a range of boiler services including plant operations and maintenance services. CFB technology accommodates a variety of hard-to-burn fuels, is environmentally compliant, and is cost-competitive with traditional steam generator technologies. Pyropower's products and services are delivered worldwide through its operations in the United States, Europe and Asia. Management of the Company believes that the acquisition of Pyropower and its technology positions the Company to compete successfully for the opportunity to supply a significant portion of new international power generation projects, particularly in Scandinavia, eastern Europe and certain parts of Asia and to participate in the developing market for repowering in the United States and Europe. Pyropower currently has approximately 1,500 employees and 1995 revenues are expected to approximate $350 million. Pyropower currently has backlog of approximately $550 million and will become a part of the power generation segment of the Company's Energy Equipment Group. In connection with the acquisition of Pyropower, the Company will record a one-time reorganization charge against earnings in the fourth quarter of 1995 of approximately $46 million before taxes. This charge will result in substantial ongoing cost savings commencing in 1996. The restructuring is likely to include the rationalization of manufacturing capacity and the reduction of approximately 500 salaried and hourly personnel from a total of 3,200 people in the combined operations. -2- 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Pro Forma Financial Data. (i) Introduction to Pro Forma Financial Data. (ii) Foster Wheeler Corporation and Pyropower Pro Forma Unaudited Condensed Combined Balance Sheet as of June 30, 1995. (iii) Foster Wheeler Corporation and Pyropower Pro Forma Unaudited Condensed Combined Statements of Earnings for the Year Ended December 30, 1994 and the Six Months Ended June 30, 1995. (iv) Notes to Pro Forma Unaudited Condensed Combined Financial Data. (b) Pyropower Historical Financial Statements. (i) Independent Auditors' Report (ii) Pyropower Combined Statement of Revenues and Expenses for the Year Ended December 31, 1994. (iii) Pyropower Combined Statement of Assets and Liabilities as of December 31, 1994. (iv) Pyropower Combined Statement of Cash Flows for the Year Ended December 31, 1994. (v) Notes to Combined Financial Statements. (c) Exhibits. Purchase Agreement dated as of June 21, 1995 between Foster Wheeler Corporation and A. Ahlstrom Corporation, as supplemented and amended by the Supplement and Amendment Agreement between Foster Wheeler Corporation and A. Ahlstrom Corporation, dated as of September 30, 1995. -3- 4 PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL DATA FOSTER WHEELER CORPORATION AND SUBSIDIARIES AND AHLSTROM PYROPOWER The following Pro Forma Unaudited Condensed Combined Balance Sheet as of June 30, 1995 and the Pro Forma Unaudited Condensed Combined Statements of Earnings for the year ended December 30, 1994 and the six months ended June 30, 1995 (collectively, the "Pro Forma Financial Data") combine (i) the historical consolidated balance sheets of Foster Wheeler Corporation and Subsidiaries (the Company) and Ahlstrom Pyropower (Pyropower) as if the acquisition had been effected on June 30, 1995, and (ii) the historical statements of earnings as if the acquisition had been effected at January 1, 1994. The pro forma unaudited condensed combined financial data has been prepared on the basis of the assumptions described in the notes to the pro forma unaudited condensed combined financial data and includes assumptions relating to the allocation of the consideration paid for Pyropower to the combined assets and liabilities of Pyropower based on preliminary estimates of their respective fair values. The actual allocation of such consideration may differ from that reflected in the pro forma unaudited condensed combined financial data after an appropriate review of the fair values of the combined assets and liabilities of Pyropower has been completed. Amounts allocated will be based upon the estimated fair values at the time of acquisition, which could vary from the amounts as of June 30, 1995. The acquisition will be accounted for using the purchase method. Although certain items noted herein are subject to potential adjustment, Management does not believe that the effect of any such adjustments will be material to the Pro Forma Financial Data. The pro forma unaudited condensed combined financial data presented is not necessarily indicative of the actual results that would have been achieved had the acquisition closed on the dates assumed herein. The pro forma unaudited condensed combined financial data should be read in conjunction with the financial statements and related notes thereto of the Company appearing in its 1994 Form 10-K and its June 30, 1995 Form 10-Q and of Pyropower appearing in this Form 8-K. -4- 5 PRO FORMA UNAUDITED CONDENSED COMBINED BALANCE SHEET FOSTER WHEELER CORPORATION AND SUBSIDIARIES AND AHLSTROM PYROPOWER As of June 30, 1995 (In Thousands of Dollars)
Foster Wheeler Ahlstrom Pro Forma Pro Forma Corporation Pyropower Adjustments Combined ASSETS CURRENT ASSETS: Cash and cash equivalents $ 199,725 $ 17,075 $ 45,000 (C1) $ 191,800 (70,000)(C2) Short-term investments 96,157 (20,000)(C2) 76,157 Accounts and notes receivable 585,764 95,356 681,120 Contracts in process 242,326 242,326 Inventories 35,847 16,605 (2,800)(C6) 49,652 Prepaid and refundable income taxes 46,537 46,537 Prepaid expenses 15,608 5,134 20,742 ---------- -------- -------- ---------- Total current assets 1,221,964 134,170 (47,800) 1,308,334 Land, buildings and equipment - net 566,212 52,036 35,000 (C4) 638,448 (14,800)(C6) Notes and accounts receivable - long-term 57,831 976 58,807 Investments and advances 52,686 8,874 (6,500)(C1) 55,060 Cost in excess of net assets of subsidiaries acquired 67,563 147,129 (C4) 214,692 Deferred charges and prepaid pension cost 221,335 16,968 (16,968)(C3) 215,335 (6,000)(C6) Deferred income taxes 3,958 3,958 ---------- -------- -------- ---------- TOTAL ASSETS $2,191,549 $213,024 $ 90,061 $2,494,634 ========== ======== ======== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current installments on long-term debt $ 32,669 $ 22 $ 32,691 Bank loans 110,070 7,196 117,266 Accounts payable and accrued expenses 333,528 56,239 20,000 (C4) 430,467 Estimated costs to complete long-term 20,700 (C6) contracts 339,252 111,610 450,862 Advance payments by customers 89,565 5,694 95,259 Income taxes 34,309 (3,000)(C5) 28,309 (3,000)(C6) ---------- -------- -------- ---------- Total current liabilities 939,393 180,761 34,700 1,154,854 Long-term debt, less current installments 515,618 2,836 120,000 (C2) 638,454
-5- 6 Deferred income taxes 21,733 21,733 Other long-term liabilities, deferred credits and postretirement benefits other than pensions and minority interest in subsidiary companies 226,551 3,088 1,700 (C6) 231,339 ---------- -------- -------- ---------- TOTAL LIABILITIES 1,703,295 186,685 156,400 2,046,380 TOTAL STOCKHOLDERS' EQUITY 3,000 (C5) 45,000 (C1) (71,339)(C1) 488,254 26,339 (43,000)(C6) 448,254 ---------- -------- -------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,191,549 $213,024 $ 90,061 $2,494,634 ========== ======== ======== ==========
The accompanying notes to the pro forma unaudited condensed combined financial data are an integral part of this data. -6- 7 PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENTS OF EARNINGS FOSTER WHEELER CORPORATION AND AHLSTROM PYROPOWER For the Year Ended December 30, 1994 and the Six Months Ended June 30, 1995 (In Thousands of Dollars, Except per Share Amounts)
YEAR 1994 SIX MONTHS 1995 ------------------------------------------------ ----------------------------------------------- Foster Pro Forma Foster Pro Forma Wheeler Ahlstrom Adjust- Pro Forma Wheeler Ahlstrom Adjust- Pro Forma Corporation Pyropower ments (C5) Combined Corporation Pyropower ments (C5) Combined ----------- ---------- --------- ---------- ----------- ---------- ---------- ---------- REVENUES: Operating revenues $2,234,441 $226,334 $2,460,775 $1,314,726 $ 135,792 $1,450,518 Other income 36,682 4,647 $(3,000) 38,329 15,149 436 $ (1,500) 14,085 ---------- -------- ------- ---------- ---------- --------- -------- ---------- Total Revenues 2,271,123 230,981 (3,000) 2,499,104 1,329,875 136,228 (1,500) 1,464,603 ---------- -------- ------- ---------- ---------- --------- -------- ---------- COSTS AND EXPENSES: Cost of operating revenues 1,909,893 225,913 (39,300) 2,096,506 1,134,056 148,590 (25,400) 1,257,246 Selling, general and 203,445 - 38,900 242,345 110,909 - 25,200 136,109 administrative expenses Other deductions 45,906 6,085 8,200 60,191 27,049 3,068 4,100 34,217 Minority interest 5,012 (923) 4,089 1,804 (342) 1,462 ---------- -------- ------- ---------- ---------- --------- -------- ---------- Total Costs and Expenses 2,164,256 231,075 7,800 2,403,131 1,273,818 151,316 3,900 1,429,034 ---------- -------- ------- ---------- ---------- --------- -------- ---------- Earnings before income taxes 106,867 (94) (10,800) 95,973 56,057 (15,088) (5,400) 35,569 Provision (benefit) for income taxes 41,457 2,006 (3,780) 39,683 19,287 (556) (4,890) 13,841 ---------- -------- ------- ---------- ---------- --------- -------- ---------- Net earnings/(loss) $ 65,410 $ (2,100) $(7,020) $ 56,290 $ 36,770 $ (14,532) $ (510) $ 21,728 ========== ======== ======= ========== ========== ========= ======== ========== Earnings per share $ 1.83 - - $ 1.57 $ 1.03 - - $ .61
The accompanying notes to the pro forma unaudited condensed combined financial data are an integral part of this data. -7- 8 NOTES TO PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL DATA FOSTER WHEELER CORPORATION AND SUBSIDIARIES AND AHLSTROM PYROPOWER (IN THOUSANDS OF DOLLARS) 1. The acquisition of Ahlstrom Pyropower (Pyropower) by Foster Wheeler Corporation and Subsidiaries (the Company) will be accounted for as a purchase. The resulting adjustments, which include the effects of converting the Pyropower financial data to U.S. generally accepted accounting principles, are based on the historical consolidated financial statements of the Company and Pyropower as well as the financing of the transaction. Final adjustments will be based upon the fair market value of the assets and liabilities of Pyropower and a payment based upon bookings of Pyropower in 1995, which payment the Company has estimated to be approximately $20 million (the "Bookings Payment"). Management does not expect the aggregate of such adjustments to exceed $2 million in either direction. The pro forma statements of earnings were translated using average exchange rates during the periods. The pro forma balance sheet was translated using the exchange rate at June 30, 1995. The pro forma unaudited condensed financial data is based on the following: (a) The acquisition was assumed to have occurred as of June 30, 1995 for balance sheet purposes and on January 1, 1994 for statements of earnings purposes. (b) The purchase price was funded initially by the long-term Revolving Credit Facilities established on September 20, 1995 with a syndicate of banks led by National Westminster Bank PLC and Mellon Bank, N.A. One facility is a short-term revolving credit facility of $200 million with a maturity of 364 days and the second is a $300 million revolving credit facility with a maturity of four years. (c) The pro-forma adjustments to reflect the effects of the transaction are as follows: (1) To record the infusion of $45,000 of cash by A. Ahlstrom Corporation to fund the working capital deficiency as required by Section 3.3 of the Purchase Agreement and to eliminate Pyropower's equity accounts of $71,339 which include the revaluation of investments of $6,500 made under International Accounting Standards. (2) To reflect the sources of the consideration paid for the estimated purchase price of $200,000, plus estimated direct costs of $10,000 to be incurred in consummating the acquisition: Cash $ 30,000 Short-term investments 20,000 Cash acquired 40,000 Long-term Revolving Credit Facilities 120,000 -------- $210,000 ========
-8- 9 (3) To eliminate purchased negative goodwill and capitalized research and development costs aggregating $16,968. (4) To reflect estimated net assets acquired: Estimated purchase price, including the estimated Bookings Payment of $20 million (see 2 above) $210,000 Plus: Estimated amounts related to employee redundancy, relocation and facilities closing costs incidental to the acquisition of Pyropower 20,000* Less: net assets of Pyropower (71,339) -------- Excess of purchase price over carrying value of net assets acquired $158,661 ======== Allocated to: Land, buildings and equipment $ 35,000 Intangibles 147,129 Purchased negative goodwill and capitalized research and development costs (16,968) Revaluation of investments (6,500) -------- $158,661 ======== * Capitalized costs of $20 million referred to above reflect Management's estimate of the costs related to severance for and relocation of Pyropower employees and the costs associated with the closing of certain Pyropower facilities. In accordance with APB 16 and FTB 85-5, such estimate does not include any costs related to existing Foster Wheeler Corporation personnel or facilities, nor does it include any indirect or general expenses related to the acquisition. An approximation of expense categories is as follows: Duplicate research and development facilities $ 12,000 Closure of excess manufacturing facilities 5,000 Redundancy in sales, general and administrative areas-severance 3,000 -------- Total $ 20,000 ======== (5) To reflect the adjustments to the pro forma condensed combined statements of earnings, as follows:
-9- 10
Six Year Months 1994 1995 -------- -------- Interest income(i) $ (3,000) $ (1,500) ======== ======== Cost of operating revenues: Depreciation(ii) $ 1,400 $ 700 Research and development costs(iii) (1,800) (900) Selling, general administrative expenses(iv) (38,900) (25,200) -------- -------- $(39,300) $(25,400) ======== ======== Other deductions: Amortization of cost in excess of net assets acquired (v) $ 4,000 $ 2,000 Interest expense (vi) 7,200 3,600 Interest expense (vii) (3,000) (1,500) -------- -------- $ 8,200 $ 4,100 ======== ========
(i) The reduction of interest income relates to the use of $50,000 of the Company's cash and short-term investments to finance the acquisition and was calculated based on historical returns for the periods presented. (ii) Estimated incremental depreciation expense resulting from costs allocated to buildings and equipment based on preliminary, third-party appraisals. The estimated economic lives assigned to acquired building and equipment will be approximately 25 to 40 years and 10 to 20 years, respectively, unless appraisals indicate different useful lives. (iii) The amortization of capitalized research and development costs was eliminated to reflect the fact that such costs were written off at January 1, 1994 as required by U.S. generally accepted accounting principles. (iv) To reclassify Pyropower's selling, general and administrative expenses from cost of operating revenues to conform to the Company's presentation. (v) Management has estimated that a composite useful life for intangibles of approximately 35 years will be used based upon the continued viability and application of the acquired "circulating fluidized bed (CFB)" technology in the market place, which technology is not subject to rapid obsolescence. (vi) Interest expense was calculated based on the current rate of six percent available to the Company under each of the Revolving Credit Facilities. (vii) Interest expense on prior intercompany notes which were capitalized under the Purchase Agreement. -10- 11 (viii) Income tax benefit ($3 million) was calculated under SFAS 109 based upon the allowable losses incurred in the United States only, since foreign losses would have resulted in a full valuation allowance due primarily to uncertainty of future foreign earnings. This is the only reconciling tax adjustment between IAS and U.S. GAAP. (6) To reflect the estimated effects of the reorganization charge to be recorded in the fourth quarter of 1995. Such charge has not been reflected in the pro forma statements of earnings as it is considered to be nonrecurring. An estimated tax benefit of $3 million has been included. The components of the reorganization charge which relate to the business of Foster Wheeler Corporation are as follows: Inventory $ 2,800 Land, buildings and equipment 14,800 Deferred charges and prepaid pension costs 6,000 Accounts payable and accrued expenses 20,700 Other long-term liabilities 1,700 ------- Total 46,000 Less tax benefit 3,000 ------- Net reorganization charge $43,000 =======
(7) Based on Management's review of accounting for pensions, differences between International Accounting Standards and U.S. generally accepted accounting principles are not considered material. - The income tax provision (benefit) was adjusted to reflect income taxes on pro forma adjustments, assuming a 35 percent tax rate. -11- 12 INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF A. AHLSTROM CORPORATION: We have audited the accompanying combined statements of assets and liabilities of Ahlstrom Pyropower representing the Power Generation Business of A. Ahlstrom Corporation and its subsidiaries (as defined in Note 1 to the Combined Financial Statements) as at December 31, 1994 and related combined statements of revenues and expenses and cash flows for the year then ended. These combined financial statements are the responsibility of A. Ahlstrom Corporation's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We did not audit the financial statements of Ahlstrom Pyropower, Inc. and subsidiaries, an entity included in the combined financial statements, which statements reflect total assets constituting 49 percent and total revenues constituting 30 percent in 1994 of the related combined totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Ahlstrom Pyropower, Inc. and subsidiaries, is based solely on the report of the other auditors. We conducted our audit in accordance with generally accepted auditing standards in Finland and the United States. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the combined financial statements referred to above present fairly, in all material respects, the financial position of Ahlstrom Pyropower as at December 31, 1994 and the results of its operations and its cash flows for the year then ended in conformity with International Accounting Standards. International Accounting Standards vary in certain significant respects from generally accepted accounting principles in the United States. A description of significant differences between International Accounting Standards and generally accepted accounting principles in the United States, as they relate to Ahlstrom, is included in Note 4 to the Combined Financial Statements. HELSINKI, OCTOBER 5, 1995 KPMG WIDERI OY AB Eric Haglund Authorized Public Accountant 13 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Ahlstrom Pyropower, Inc. We have audited the special purpose ("carve-out") consolidated balance sheet of Ahlstrom Pyropower, Inc. and subsidiaries exclusive of certain liabilities and the investments in Ahlstrom Development Corporation and Multipower Associates, but inclusive of Ahlstrom Development Corporation's investment in Pyropower Operating Services Corporation (collectively, the "Company") as of December 31, 1994 and the related special purpose consolidated statements of operations, stockholder's equity and cash flows for the year then ended. Such financial statements are not separately included herein. These financial statements have been prepared from the historical books and records of Ahlstrom Pyropower, Inc. except that certain assets, obligations and liabilities that will not be assumed by Foster Wheeler Corporation have been excluded from these financial statements. These consolidated special purpose financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated special purpose financial statements based on our audit. We did not audit the financial statements of a partnership (Pyro-Pacific Operating Company) in which the Company's ownership reflects total assets of $2,791,000 at December 31, 1994, and income of $2,516,000 for the year then ended. Those statements were audited by another auditor whose report has been furnished to us, and our opinion, insofar as it relates to amounts included for that partnership, is based solely on the report of the other auditor. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion. The accompanying special purpose consolidated financial statements were prepared to present the consolidated financial position of the Company at December 31, 1994 and the consolidated results of its operations and its cash flows for the year then ended, pursuant to the Purchase Agreement between A. Ahlstrom Corporation and Foster Wheeler Corporation dated June 21, 1995 as amended September 30, 1995 ("Purchase Agreement") and are not intended to be a complete presentation of Ahlstrom Pyropower, Inc. and subsidiaries' consolidated financial position at December 31, 1994 nor the consolidated results of their operations and their cash flows for the year then ended. Ahlstrom Pyropower, Inc. and A. Ahlstrom Corporation of Finland ("A. Ahlstrom"), which is the ultimate parent company, and certain affiliates of A. Ahlstrom allocate certain administrative expenses to the Company. These charges are based on A. Ahlstrom corporate policies for allocation of such amounts. In our opinion, based on our audit and the report of the other auditors, the accompanying special purpose consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1994, and the consolidated results of its operations and its cash flows for the year then ended, pursuant to the Purchase Agreement, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. San Diego, California April 21, 1995, except as to matters relating to the Purchase Agreement, the date as to which is September 30, 1995 14 DELOITTE & TOUCHE LLP REPORT OF INDEPENDENT AUDITORS The Partners Pyro-Pacific Operating Company Bakersfield, California We have audited the balance sheet of Pyro-Pacific Operating Company, a partnership, as of December 31, 1994, and the related statements of income, partners' capital, and cash flows for the year then ended (such financial statements are not separately included herein). These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As more fully described in the notes to the financial statements, Pyro-Pacific Operating Company earns substantially all of its revenues from Mt. Poso Cogeneration Company, a partnership which has common controlling ownership, and it purchases certain management personnel services from several other affiliated entities. In our opinion, such financial statements present fairly, in all material respects, the financial position of Pyro-Pacific Operating Company as of December 31, 1994, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Deloitte & Touche LLP Fresno, California January 17, 1995 15 AHLSTROM PYROPOWER COMBINED STATEMENT OF REVENUES AND EXPENSES for the year ended 31st December, 1994 (FIM in thousands)
Revenues 1,162,453 Costs and expenses (1,123,356) ---------- GROSS PROFIT 39,097 Depreciation and amortization (36,934) ---------- OPERATING INCOME 2,163 Interest and other financing expense (21,312) Interest income 2,953 Exchange losses (9,942) Share of profits of associated companies 20,827 Dividends received 91 ---------- LOSS BEFORE TAXES AND MINORITY INTEREST (5,220) Taxes (10,303) ---------- LOSS BEFORE MINORITY INTERESTS (15,523) Minority interest 4,739 ---------- NET LOSS (10,784) ==========
See accompanying notes to financial statements 16 AHLSTROM PYROPOWER COMBINED STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 (FIM in thousands)
ASSETS FINANCIAL ASSETS: Liquid funds 33,666 Accounts receivable 156,629 Notes receivable 48,085 Prepaid expenses and accrued income 11,969 Other financial assets 9,856 ------- Total financial assets 260,205 ------- INVENTORIES: Materials and supplies 18,005 Finished goods and work in progress 14,597 ------- Total inventories 32,602 ------- PROPERTY, PLANT AND EQUIPMENT: Construction in progress 490 Land and water areas 37,352 Buildings and constructions 113,476 Machinery and equipment 98,046 ------- Total property, plant and equipment 249,364 ------- OTHER NONCURRENT ASSETS: Long-term receivables 4,325 Investment in associated companies 52,507 Intangible assets 41,258 Capitalized research and development costs 39,139 ------- Total other noncurrent assets 137,229 ------- TOTAL ASSETS 679,400 =======
See accompanying notes to financial statements 17 AHLSTROM PYROPOWER COMBINED STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1994 (FIM IN THOUSANDS) LIABILITIES AND NET INVESTMENT OF A. AHLSTROM CORPORATION LIABILITIES: Short-term liabilities: Accounts payable 136,220 Notes payable 7,566 Advances received 14,702 Accrued liabilities 93,518 Current portion of long-term debt 332 Other short-term liabilities 26,235 Progress billings of uncompleted construction contracts 1,824,443 Less costs and earnings (1,634,159) ---------- Total short-term liabilities 468,857 ---------- Long-term liabilities: Long-term debt 5,761 Other long-term liabilities 6,977 ---------- Total long-term liabilities 12,738 ---------- MINORITY INTEREST 9,358 NEGATIVE GOODWILL 11,465 NET INVESTMENT OF A. AHLSTROM CORPORATION 176,982 ---------- TOTAL LIABILITIES AND NET INVESTMENT OF A. AHLSTROM CORPORATION 679,400 ==========
See accompanying notes to financial statements 18 AHLSTROM PYROPOWER COMBINED STATEMENT OF CASH FLOWS for the year ended 31st December, 1994 (FIM in thousands) Cash flow from operating activities: Loss before taxes and minority interest (5,220) Adjustments for: Depreciation and amortization 36,934 Unrealized foreign exchange gains and losses 2,439 Share of net income of associated companies (20,827) Interest income (2,953) Interest expense 21,312 Other 2,210 -------- Operating income before working capital changes 33,895 Increase in inventories (23,140) Decrease in uncompleted construction contracts 234,129 Increase in accounts receivable (5,284) Decrease in other short-term receivables 9,813 Decrease in prepaid expenses and accrued income 43,150 Decrease in non-interest bearing current liabilities (63,200) -------- Cash generated from operations 229,363 Interest received 2,953 Interest paid (20,992) Income taxes paid (744) -------- Net cash from operating activities 210,580 -------- Cash flow from investing activities: Capital expenditures (See notes 7-15) (45,163) Proceeds from sale of noncurrent assets 7,513 Distributions from associated companies 12,841 -------- Net cash used in investing activities: (24,809) --------
See accompanying notes to financial statements 19 AHLSTROM PYROPOWER COMBINED STATEMENT OF CASH FLOWS for the year ended 31st December, 1994 (FIM in thousands) Cash flow from financing activities: Proceeds from issuance of share capital 11,997 Capital investment by minority shareholders 5,451 Change in the Net Investment of A. Ahlstrom Corporation (175,824) Payments of long-term interest bearing liabilities (4,567) Payments of short-term interest bearing liabilities (8,955) Payments of long-term receivables (1,484) Payments of notes receivable (10,931) -------- Net cash used in financing activities (184,313) -------- Net increase in cash and cash equivalents 1,458 Cash and cash equivalents at beginning of period 38,008 Foreign exchange adjustment (5,800) -------- Cash and cash equivalents at end of period 33,666 ========
See accompanying notes to financial statements 20 AHLSTROM PYROPOWER NOTES TO COMBINED FINANCIAL STATEMENTS 1. Basis of Presentation Ahlstrom Pyropower (AP) develops and markets advanced combustion technology and related products for worldwide industrial and utility markets and specializes in power generation systems based on fluidized bed technology. AP presents the power generation sector of A. Ahlstrom Corporation (Ahlstrom) of Finland that is being sold to Foster Wheeler Corporation (FWC) pursuant to the Purchase Agreement, as defined below in Note 2. These financial statements present the combined financial position, results of operations and cash flows of AP in accordance with International Accounting Standards (IAS), as adopted by Ahlstrom. These financial statements have been prepared from the historical books and records of AP except that certain assets, obligations and liabilities that will not be assumed by FWC have been excluded from these financial statements. All debts to affiliated companies have been capitalized in accordance with the Purchase Agreement discussed in Note 2 and are included in the Net Investment of A. Ahlstrom Corporation. In addition, income tax expense was determined as if AP had filed a separate tax return. The Net Investment of A. Ahlstrom Corporation in the combined statement of assets and liabilities represents the difference between assets to be acquired and liabilities to be assumed by FWC. Based on the most recent information available to management as of the date of the issuance of these financial statements, October 5, 1995, about conditions that existed at the balance sheet date, certain adjustments, which were not material to the A. Ahlstrom Corporation financial statements, have been made to net assets as of January 1, 1994 and to the results of operations for the year ended December 31, 1994, to reflect the latest profitability and loss estimates on individual contracts and related warranty reserve provision. Such adjustments have been reflected in conformity with both IAS and U.S. generally accepted accounting principles (US GAAP). 21 AHLSTROM PYROPOWER NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. Purchase Agreement On June 21, 1995 FWC entered into a Purchase Agreement (Agreement) with Ahlstrom. Under the terms of the Agreement, FWC will acquire the stock of certain subsidiaries of Ahlstrom and certain of AP's assets and assume certain liabilities as defined in the Agreement. 3. Summary of Significant Accounting Policies The financial statements of AP have been prepared in connection with International Accounting Standards (IAS). Accounting convention The financial statements are presented in Finnish marks and are prepared under the historic cost convention except for revaluations of certain items included in noncurrent assets. Principles of combination The combined financial statements include the accounts of Varkaus Boiler Works (part of A. Ahlstrom Corporation) Hans Ahlstrom Laboratory (part of A. Ahlstrom Corporation) Steka Oy, Finland Bioflow Oy, Finland Ahlstrom Pyropower Inc. and subsidiaries, USA Ahlstrom Fakop Ltd., Poland Ahlstrom Pyropower K.K., Japan Ahlstrom Pyropower Europe B.V., The Netherlands The equity method of accounting is used to account for investments in associated companies in which AP has 20 to 50 percent of the voting shares. Shares in associated companies are revalued to their fair value with a corresponding increase to equity. The results of operations of companies acquired during the year are included in the financial statements from the date of acquisition, and companies that have been sold during the year are included up to the date of sale. 22 AHLSTROM PYROPOWER NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) All significant intercompany accounts and transactions are eliminated in combination. Acquisitions are accounted for under the purchase method of accounting and accordingly, in each case, the purchase price is allocated to the assets acquired and the liabilities assumed based upon their estimated fair values at the date of acquisition. The excess of the fair value of the net assets acquired over the purchase price is recorded on the statement of assets and liabilities as negative goodwill. Negative goodwill is amortized on a straight-line basis over a maximum of 10 years. Revenue recognition Revenue from the sale of goods and services is recognized when the goods are delivered or the services are rendered. Revenue from construction contracts is recognized under the percentage of completion method. Net sales are shown net of returns, discounts and gains and losses on forward exchange contracts entered into for hedging of sales contracts. Other exchange gains and losses related to sales appear under the caption "Exchange losses." Losses and warranty claims for construction contracts Anticipated contract losses are recognized in full when they become known. Estimated warranty costs are charged to income at the time of completion of the contracts. Foreign currency translation Assets and liabilities that result from foreign currency transactions are restated at the exchange rates in effect at year-end. The resulting gains and losses are credited or charged to income. Foreign currency financial statements are translated into Finnish marks using exchange rates in effect at year-end. The effect of the adjustments arising from such translation is included in the Net Investment of A. Ahlstrom Corporation. 23 AHLSTROM PYROPOWER NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Research and development costs Research and development costs are expensed as incurred. However, the costs of certain strategic development projects are capitalized and amortized over a maximum of ten years. Inventories Inventories are stated at the lower of cost or market, primarily on a first-in, first-out basis. The cost of inventories includes all direct costs as well as an allocation of production overheads. Property, plant and equipment Property, plant and equipment is carried at cost or in certain cases, revalued amounts, less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets within the following ranges: Buildings 25 - 40 years Heavy machinery 10 - 20 years Other machinery 3 - 10 years
Intangible assets Intangible assets are amortized over a maximum of twenty years. Capitalization of interest costs Interest costs are capitalized as part of the acquisition costs of assets which are constructed for AP's own use. Taxes For AP's U.S. based companies, deferred taxes are provided for temporary differences between the book and tax basis of assets and liabilities in accordance with local practice. For AP's other companies, the deferred tax liability is recorded only if it is likely to crystallize or become payable in the foreseeable future. 24 AHLSTROM PYROPOWER NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Corporate expenses Ahlstrom has charged AP for certain corporate administrative expenses. The charges were designed to reimburse Ahlstrom for management, financial and certain other services provided in accordance with Ahlstrom's corporate policies for allocation of such amounts. The amounts allocated are not material to total costs and expenses and, in Management's estimate, the difference between such amounts and expenses incurred on a stand-alone basis would not be material to results of operations. 4. Summary of significant differences between IAS and U.S. GAAP The combined financial statements of AP have been prepared in accordance with International Accounting Standards (IAS). IAS differ in certain respects from U.S. GAAP. A summary of such differences, as they relate to AP, follows. Research and development costs AP capitalizes the costs of certain strategic development projects, which are amortized over a maximum of ten years. U.S. GAAP requires that research and development costs be expensed as incurred. Translation of foreign subsidiaries financial statements In the combined financial statements of AP, the assets and liabilities and the revenue and expense accounts of the foreign entities are translated from the entities' foreign currency into Finnish marks using the exchange rates prevailing at the end of each period. Under U.S. GAAP, the profit and loss accounts of foreign subsidiaries would be translated to Finnish marks at the average exchange rates prevailing during the year. Differences arising on translation would also be recorded directly to net investment of A. Ahlstrom Corporation. Revaluation of land and buildings IAS provides the opportunity to revalue property, plant and equipment to its fair value with a corresponding increase to equity. Depreciation is based upon the revalued basis of the assets acquired. 25 AHLSTROM PYROPOWER NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Under U.S. GAAP, revaluation of fixed assets is not allowed and depreciation is based upon the historical cost basis of the assets acquired. Deferred income taxes Under IAS, the company records a liability for deferred income taxes for timing differences to the extent that it is likely to reverse or crystallize in the foreseeable future, except for U.S. operations which are recorded in accordance with U.S. GAAP. U.S. GAAP requires that deferred taxes be established on all differences between the book basis and the tax basis of assets and liabilities (i.e., temporary differences) regardless of the likelihood of reversal or crystallization. U.S. GAAP allows deferred tax assets to be established for all temporary differences which will be future tax deductions and tax loss carry forwards, to the extent that it is "more likely than not" that AP will realize a tax benefit. Acquisitions AP uses the purchase method to account for the acquisition of a business. In certain cases, the fair value of the net assets acquired may exceed the purchase price (i.e., "negative good will"). AP amortizes negative goodwill as income in the revenue and expense accounts. Under U.S. GAAP, negative goodwill is required to be first applied to reduce the carrying value of acquired long-term tangible and identifiable intangible assets. Any remaining negative goodwill is then recorded as a deferred credit in the statement of assets and liabilities and amortized to income in the revenue and expense accounts over its estimated useful life. Revaluation of shares and equity investments IAS provides the opportunity to revalue shares in associated companies accounted for by the equity method to its fair value with a corresponding increase to equity. Under U.S. GAAP, revaluation of shares and equity investments is not allowed. 26 AHLSTROM PYROPOWER NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Pensions AP has various pension schemes in subsidiaries as required by local conditions and practices of the countries in which they operate. AP's policy for funding its pension plans is to satisfy local statutory funding requirements for tax deductible contributions. These contributions are charged against profits. Accounting for pension costs under U.S. GAAP is governed by SFAS No. 87, "Employers' Accounting for Pensions." SFAS No. 87 is more prescriptive, particularly as to the use of actuarial assumptions, and requires that a specific actuarial method, the projected unit cost method, be used. 5. Minority interests The minority interest benefit in the statement of revenues and expenses is the result of losses being incurred primarily by the Polish company of AP, which is 49.11% owned by minority shareholders. 6. Subsequent events In connection with the acquisition of Ahlstrom Pyropower by Foster Wheeler Corporation (see Note 2), certain adjustments were made to the assets and to the liabilities of AP, including additional provisions for possible future warranty liabilities and certain contingencies. In Management's opinion, it is not appropriate under IAS or US GAAP that these adjustments be reflected in the financial statements as of December 31, 1994, as these adjustments relate to conditions or events which occured subsequent to December 31, 1994. 7. Capitalized research & development expenses Cost at January 1, 1994 31,496 Translation adjustment (1,606) Additions 9,249 ------ Book value at December 31, 1994 39,139 ======
27 AHLSTROM PYROPOWER NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 8. Intangible rights Cost at January 1, 1994 60,016 Translation adjustment (9,428) Additions 2,502 Other increase/decrease 154 Accumulated depreciation (21,703) ------- Book value at December 31, 1994 31,541 ======= 9. Other intangible assets Cost at January 1, 1994 38,677 Translation adjustment (2,933) Additions 51 Sales (1,779) Other increase/decrease 16 Accumulated amortization (24,315) ------- Book value at December 31, 1994 9,717 ======= 10. Land and water areas Cost at January 1, 1994 45,598 Translation adjustment (8,246) ------- Book value at December 31, 1994 37,352 ======= 11. Buildings and constructions Cost at January 1, 1994 178,646 Translation adjustment (22,355) Additions 2,719 Other increase/decrease (71) Accumulated depreciation (45,463) -------- Book value at December 31, 1994 113,476 =======
28 AHLSTROM PYROPOWER NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 12. Machinery and equipment Cost at January 1, 1994 286,598 Translation adjustment (26,132) Additions 28,247 Sales (13,677) Other increase/decrease 1,715 Accumulated depreciation (179,576) -------- Book value at December 31, 1994 97,175 ======== 13. Other tangible assets Cost at January 1, 1994 5,747 Translation adjustment (812) Additions 36 Other increase/decrease (1,672) Accumulated depreciation (2,428) -------- Book value at December 31, 1994 871 ======== 14. Advances paid and construction in progress Cost at January 1, 1994 7,820 Translation adjustment (183) Additions 113 Reductions (7,260) -------- Book value at December 31, 1994 490 ======== 15. Investment in associated companies Cost at January 1, 1994 44,397 Translation adjustment (2,386) Additions 2,263 Other increase/decrease 8,233 -------- Book value at December 31, 1994 52,507 ========
16. Uncompleted construction contracts 29 AHLSTROM PYROPOWER NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Costs and Progress Net earnings billings Contracts in which costs and earnings exceed progress billings 837,644 (741,953) 95,691 Contracts in which progress billings exceed costs and earnings 796,515 (1,082,490) (285,975) --------- ---------- -------- Total 1,634,159 (1,824,443) (190,284) ========= ========== ========
17. Contingent liabilities and collateral Pledgings 7,105 Loan guarantees In favor of others 1,677 Other guarantees In favor of others 1,223 Letters of Credit* 58,282
* No amounts have been drawn against these Letters of Credit. AP also has surety bonds and other indemnity agreements outstanding to various corporations, which primarily relate to specific performance under contracts. AP has transferable real estate collateral in the amount of 215,850 for use in potential secured lending arrangements. This collerateral will be assigned to Foster Wheeler Corporation or its designees in accordance with the Purchase Agreement described in Note 2. 18. Maturities of long-term loans
1995 1996 1997 1998 1999 2000 or later ---- ---- ---- ---- ---- ------------- 332 974 1,850 810 798 8,306
30 AHLSTROM PYROPOWER NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 19. Net sales Revenue from construction contracts recognized by the percentage-of-completion method 943,903 Order backlog of contracts at December 31, 1994 1,684,300 20. Depreciation and amortization Intangible rights (4,490) Goodwill 2,084 Other intangible assets (6,177) Buildings and constructions (5,292) Machinery and equipment (22,813) Other tangible assets (246) --------- Total (36,934) ========= 21. Taxes For current year 10,303
Taxes being greater than income before taxes and minority interest results from the majority of the income of AP being generated by Finnish operations, which has had tax provided for at a rate of 25%, and losses being incurred by foreign operations, which cannot be used to reduce Finnish taxable income and for which no deferred tax benefit has been recognized. 22. Investments in associated companies Associated companies 52,262 Other companies 245 ------ Total 52,507 ======
31 AHLSTROM PYROPOWER NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 23. Revaluations Buildings 3,280 Shares and equity investments 31,030 ------ Total 34,310 ====== 24. Provisions for contingencies Warranty costs 33,282 ======
HELSINKI, OCTOBER 5, 1995 Orvo Siimesto Hannu Hurri A. Ahlstrom Corporation A. Ahlstrom Corporation Chief Financial Officer Corporate Controller 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. FOSTER WHEELER CORPORATION (Registrant) Date: October 31, 1995 By /s/ David J. Roberts ---------------------------------- Name: David J. Roberts Title: Vice Chairman, Chief Financial Officer 33 Exhibit Index
EXHIBIT NO. DESCRIPTION PAGE NO. 10.1 Purchase Agreement* 10.2 Supplement and Amendment Agreement* 23.1 Consent of KPMG Wideri Oy Ab
*Previously filed EX-23.1 2 CONSENT OF KPMG WIDERI OY AB 1 Exhibit 23.1 [KPMG Wideri Letterhead] The Board of Directors of A. Ahlstrom Corporation We consent to the incorporation by reference in the registration statements (No.'s 2-91384, 33-34694, 33-40878 and 33-59739) on Form S-8 of Foster Wheeler Corporation of our report dated October 5, 1995, with respect to the combined statements of assets and liabilities of Ablstrom Pyropower as of December 31, 1994, and the related combined statements of revenues and expenses and cash flows for the year then ended, which report appears in the Form 8-K/A of Foster Wheeler Corporation dated October 31, 1995. Helsinki, Finland, October 30, 1995 KPMG WIDERI OY AB /s/ Eric Haglund - ---------------------------- Eric Haglund Authorized Public Accountant -----END PRIVACY-ENHANCED MESSAGE-----